Bank of Portugal Forecasts Deeper Economic Contraction This Year

By Joao Lima -
Mar 26, 2013

Portugal’s economy will contract
more than previously forecast this year as private consumption
drops and export growth slows, the country’s central bank said.

Gross domestic product will shrink 2.3 percent in 2013
after declining 3.2 percent in 2012, the Lisbon-based Bank of
Portugal said today in its Spring economic bulletin. In January,
the central bank forecast a contraction of 1.9 percent for 2013.
It projects growth of 1.1 percent in 2014.

“This contraction reflects a sharp decline in domestic
demand, against a background of lower permanent income
prospects,” the central bank said in a statement. “Exports are
projected to decelerate, although maintaining a positive growth,
despite the deteriorating outlook for external demand.”

Prime Minister Pedro Passos Coelho is battling rising
joblessness and lower demand from European trading partners as
he raises taxes to meet the terms of a 78 billion-euro ($100
billion) aid plan from the European Union and the International
Monetary Fund. The government on March 15 announced wider
deficit targets as it forecast the economy will shrink twice as
much as previously estimated this year.

The bank forecasts investment will drop 7.1 percent in 2013
and increase 1.9 percent next year, while private consumption
will decline 3.8 percent and 0.4 percent, respectively. It
projects inflation of 0.7 percent for this year and 1 percent in
2014.

Imports will drop 2.9 percent in 2013 while exports will
rise 2.2 percent, slowing from 3.3 percent growth in 2012.